Circle Moves to Minimize US Debt Default Risk
Stablecoin issuer Circle has reportedly adjusted its reserves treasury in an effort to reduce the risks of United States debt defaults.
Adjustments to USDC Reserves Treasury
According to a May 10 Politico newsletter, Circle CEO Jeremy Allaire said that the firm has adjusted the mix of reserves backing its USD Coin by switching to short-dated U.S. Treasurys to avoid getting caught up in a potential U.S. debt default.
He said that the firm no longer holds Treasuries maturing beyond early June because it wants to avoid debt exposure.
“We don’t want to carry exposure through a potential breach of the ability of the U.S. government to pay its debts.”
Current Holdings and Debt Limit Concerns
The Blackrock-managed Circle Reserve Fund shows that current holdings mature no later than May 31.
Earlier this week, Treasury Secretary Janet Yellen said the government will be forced into making “decisions” if Congress doesn’t raise the federal debt limit.
U.S. President Joe Biden and Republicans are conflicted over raising the $31.4 trillion borrowing limit. The $24 trillion Treasury market and global financial system would be rattled if the country defaulted on its debts.
Rival Stablecoin Issuer Tether
Rival stablecoin issuer Tether claims a majority of its reserves are invested in Treasury bills with an average maturity of fewer than 90 days.
The firm stated that it has been “working to take steps to reduce its reliance on pure bank deposits as a source of liquidity,” according to a May 10 quarterly assurance report.
USDC Market Share Decline and Tether’s Dominance
USDC supply has been shrinking over the past year, falling by 46% since its all-time high of $56 billion in June 2022. This has caused its market share to fall to 23% with a circulation of $30 billion. The beneficiary has been rival Tether, whose market dominance has increased to 62% with a circulation of $82 billion USDT.
In April, Allaire blamed America’s war on crypto and the banking crisis for USDC’s dwindling market capitalization.